Iraq debt deal sets Africa precedent, says World Bank head

The determination of the United States to write off Saddam Hussein's $90bn debt mountain has opened the door to a more generous deal for the most impoverished countries in Africa, the president of the World Bank said last week.

James Wolfensohn said in an interview with the Guardian that George Bush's insistence on putting post-conflict Iraq on a sustainable financial footing opened the way for a fresh look at debt relief for all countries.

Speaking ahead of the spring meeting of the bank and the International Monetary Fund, Mr Wolfensohn said it was "inevitable that we have another look at how the whole global community can come together on debt".

The US has been resisting calls from the developing world to re-examine the heavily indebted poor countries initiative (HIPC), which was designed to write off the unpayable debts of 42 nations, most of them in sub-Saharan Africa.

But Mr Wolfensohn said the intellectual climate had altered as a result of the White House's argument that the Iraqi people deserved a fresh start because their country's debt burden was accumulated under a brutal dictator. He said many other nations could deploy the same argument.

"In the light of the debt relief initiative for Iraq, a lot of countries are saying 'we also had debts assumed by people that shouldn't have assumed them'. They are saying that if debt relief is happening for Iraq it should be happening for us too."

The bank believes that many poor countries have been adversely affected since the launch of HIPC by falling commodity prices or other external events, and will unveil a possible framework for revisiting debt relief at the meeting. It expects the annual meetings of the bank and IMF in early October to press ahead with new proposals.

An early test of whether rich countries in the West are willing to offer a better deal to indebted countries will be the case of Ethiopia, due to be discussed by the bank and IMF over the next couple of weeks. "It is absolutely logical to look at countries where the numbers have changed," said Mr Wolfensohn. "There is a general acceptance about that."

Unless more generous debt relief formed part of a package of reforms, there was little prospect of the world's poorest countries meeting the targets set by the UN for poverty reduction by 2015.

"Africa remains our number one challenge. If you look at Africa, not only are things not getting better, they are getting worse. It would surprise me if we could reach the goals by 2015."

Mr Wolfensohn said that debt relief, coupled with more aid from the developed world, a breakthrough in the global trade talks and better governance in developing countries were needed to lift sub-Saharan Africa out of poverty.

The ballooning budget deficit in the US could push global interest rates higher, with damaging consequences for poorer countries, the bank warned last week.

Releasing its annual assessment of capital flows to the developing world, the lender said imbalances in the global economy had to be corrected to keep the recovery on track. Borrowing from capital markets by developing countries rebounded last year to its highest level since the Asian crisis, the bank said. But most of the increase was accounted for by a few middle-income countries.